High Court allows proceedings in England despite Russian 'exclusive jurisdiction' clauses

The High Court, in a significant recent decision in Zephyrus Capital Aviation Partners v Fidelis Underwriting Ltd [2024], has found that claimants that owned and leased aircraft to Russian airlines could continue to pursue claims against defendant insurers and reinsurers in the English Courts – notwithstanding contractual clauses that provide for the resolution of disputes through the exclusive jurisdiction of the Russian courts.

Russian defendants had applied to the court to exercise its discretion to stay proceedings in England to give effect to exclusive jurisdiction clauses in favour of the Russian Court. The judge refused to grant the stay predominantly based on a finding that the claimants would be unlikely to receive a fair trial in Russia

Claims against reinsurers

The claimants are owners and lessors, financing banks (or their assignees) and managers of aircraft and aircraft engines that were leased to Russian airlines under leases governed by English, Californian or New York law.

The leases generally required the lessee airlines to insure and, where the insurer was not part of the London and international market, to reinsure the aircraft in respect of hull all risks and war risks. Reinsurance contracts contained a cut-through clause (enabling direct claims against the reinsurers).

The Russian airlines obtained insurance with Russian insurance companies. These insurers reinsured the vast majority of their risk with various London and international market reinsurers – the defendants – alongside (that is, jointly) with Russian reinsurers, usually the state-owned Russian National Reinsurance Company.

The insurance and reinsurance policies contained Russian law and jurisdiction clauses. The claimants contended they did not know the policies were subject to Russian law and jurisdiction, although this was disputed.

Following the February 2022 invasion of Ukraine, the claimants issued default and termination notices under leases, relying on various grounds, including the imposition of sanctions on Russia by the EU, UK and the USA.

Following the issue of such termination notices, the Russian airlines failed to return the aircraft to the claimants. The claimants brought claims against the defendant reinsurers in respect of the loss of the aircraft.

Exclusive jurisdiction clauses

The English court will usually give effect to parties' agreements, including agreements concerning the resolution of their disputes.

The court will grant a stay of English proceedings brought in breach of a clause which provides that the courts of another jurisdiction shall determine disputes unless the counterparty to the jurisdiction clause can point to strong reasons in the interests of justice for the court not to do so.

What constitutes a strong reason will depend on all the facts and circumstances of the particular case, and the burden of meeting this threshold is on the claimant.

Strong reasons are not shown merely by establishing factors that would make England the appropriate forum, where the court is considering forum conveniens in other circumstances. Accordingly, factors of mere convenience, such as the location of witnesses and documents or governing law, cannot be regarded as "strong reasons" not to give effect to a choice of forum clause.

However, the court can have regard to whether the claimant would be prejudiced by having to sue in the foreign court because they would – for political, racial, religious or other reasons – be unlikely to get a fair trial.

The court held that a case in which a party is unlikely to receive a fair trial in the agreed forum, due to state intervention or lack of judicial independence and impartiality, is high on the spectrum of cases engaging the interests of justice.

Fair trial in Russia?

The judge considered that, for the claimant to establish that it would not obtain a fair trial in Russia, it will generally be necessary to show that the preponderance (in terms of weight and cogency) of the evidence indicates that it is likely that the agreed forum will not provide a fair trial.

The claimant must adduce “positive and cogent evidence”. It is not sufficient for a claimant to make “broad and conclusory allegations” about the judicial system in the contractual forum, but the claimant may be able to identify specific features of the claim that give rise to a real risk of injustice

It was common ground in expert evidence that the Russian state is both willing and able to interfere in cases which are of sufficient interest to it and to affect the outcome of judicial decisions.

It was also common ground that the sanctions imposed on Russia by the EU and UK would not be recognised as legally binding in Russia and, as a consequence, the termination of an agreement based solely or exclusively on Western sanctions would not be recognised as a valid termination by the Russian courts.

Very unlikely

Overall, the judge concluded that claimants were very unlikely to receive a fair trial because:

• There is substantial Russian state exposure via the state-owned Russian National Reinsurance Company (which would most likely be joined to proceedings in Russia).
• The Russian courts would be unlikely to be able objectively to determine parts of the claims.  
• There is Russian state interest by virtue of contingent subrogated claims against the civil aviation sector or the state itself.
• The Russian court would be likely to apply provisions other than the governing law.
• The claimants are from states officially designated by Russia as "unfriendly foreign states".

Osborne Clarke comment

The judgment is a very interesting decision on the court's willingness to allow proceedings to be pursued in apparent breach of exclusive jurisdiction clauses, both in the context of the significant volume of litigation that has followed the imposition of Western sanctions on Russia – and Russian counter-sanctions – and more generally.

The judgment is a reminder of the court's general policy of enforcing jurisdiction agreements between contracting parties, but illustrative of its willingness to adopt a different approach where exceptional circumstances and the interests of justice require. 

Osborne Clarke has previously acted in proceedings brought in the English High Court – Qatar Airways Group QCSC v Middle East News FZ LLC & Ors [2020] – where the natural forum could be considered to have been Dubai in the United Arab Emirates (UAE). However, the Qatari claimant (for whom Osborne Clarke acted) persuaded the court that the UAE would not be an appropriate forum due to "access to justice considerations" and, in particular, the UAE becoming a hostile environment for Qataris during the time of the blockade of Qatar by UAE, Saudi Arabia and others which began in 2017.